TMI Blog2019 (1) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2018 and Sirpur Paper Mills Ltd. was disposed of on 19/09/2018. So they are aware that upon dissent, they would not lose their share prior to their date of voting against the Resolution Plan. They had enough time to challenge the methodology, decided on 21/04/2018. However, they have not opted to challenge the methodology in time. They have not opted to file the objection even at the time of filing application for approval of the first approved Plan. IFCI rushed to the AA after two days of filing the application for approval of the restated resolution plan - the objection of the objectors in that regard is found not at all sustainable - thus, the CA (IB) No. 1092/KB/2018 challenging the distribution methodology is not maintainable. Whether the distribution methodology for disbursing payments to financial creditors approved and passed by Committee of Creditors (CoC) in the meeting held on 21/4/2018 is unjust, and creates unreasonable distinction among the financial creditors as alleged? If so whether the distribution is to be made in accordance with the voting share of the financial creditors as alleged? - Held that:- Creation of class amongst the financial creditors is known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, its employees, members, creditors, guarantors and other stakeholders involved in the Resolution Plan - The revival plan of the company in accordance with the approved Resolution Plan shall come into force with immediate effect - The moratorium order passed under Section 14 shall cease to have effect. - C.A. (IB) NO. 387/KB/2017 And C.A. (IB) NOS. 1086 In 1092/KB/2018 - - - Dated:- 7-12-2018 - SHRI JINAN K.R., MEMBER (J) For The Resolution Professional : Sumit Binani, Jishnu Chowdhury, Sidhartha SharmaMs. Namrata Basu, Advs. For The Committee of Creditors : Joy Saha, Sr. Adv, Siddharha Datta, Ms. Suhani Dwivedi, Adv., Deepanjan Dutta Roy, Advs., Jishnu Saha, Sr. Adv., Anuj Singh, Adv., Rishav Banerjee, Adv., A.K. Singh, Adv., Ritoban Sarkar, Avishek Das, Advs., Ratnanko Banerjee, Sr. Adv., Shounak Mitra, Zulfiquar Ali Al-Quaderi, For the SREI : D. N. Sharma, Advs., Rishav Dutta, Ms. V. Pandey, For the Orissa Meralink : R.N. Ghosh, Adv. and Arkadeb Biswas, Advs ORDER 1. Both these applications are taken together for consideration for convenience and for avoidance of repetition of fact and since the moot question germane for consideration in both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CoC, which is to decide the best Resolution Plan within 10 days and the same is to be placed before the Adjudicating Authority. 6. The CoC, in its meeting held on 14th November, 2018, for negotiation with all 4 Resolution Applicants, ultimately approved the Restated Final Resolution Plan of BPSL, and the Resolution Professional has filed the instant application, CA(IB) No. 1086/KB/2018, for the approval of Resolution Plan of BPSL, which has been approved by the CoC with 77.2% voting shares. The Resolution Professional submits that the Resolution Plan submitted by BPSL meets with the requirement of the Code and Regulations. He also submits that since the CIRP period of 270 days had already expired on 18/05/2018 and during the CIRP period, one of the Resolution Applicant, i.e., SREI, has filed an appeal before the Hon ble NCLAT, being Company Appeal (AT) (Insolvency) No. 184 of 2018, challenging the order dated 26/04/2018 passed by the Adjudicating Authority and the appeal was finally decided by a judgement of the Hon ble Appellate Tribunal in IA No.1792 of 2018 dated 13th November, and if that period is excluded, filing of the application is within the period of CIRP. Ld. Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue. However, the law being amended, the applicant now vehemently objected to the method of distribution in the Plan, which was put to vote at the said 22nd CoC meeting and was approved by a voting share of 77.20%. 10. The applicant states that the Code does not make any differentiation amongst secured creditors inter se, and that the difference introduced by the CoC and the RP has no legal basis. It further states that in Chapter 2 of Part II of the Code dealing with CIRP, no provision mandates any classification of the secured creditors, and that the issue of ranking of security is provided only under Chapter 3 of Part II of the Code dealing with Liquidation stage. The applicant also submits that the distribution of funds is permissible on the basis of the voting share of the respective Financial Creditors since the Code does not make any distinction amongst various types of charge-holders except only in the case where liquidation process is initiated. The applicant submits that the Resolution Plan creates an unreasonable distinction among the Financial Creditors which is contrary to law and the principles of equality, and thereby puts a group of financial creditors at an adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Ltd., (in short, OMPL) . c. Bhagwati Power and Steel Ltd., (in short BPSL) . d. SREI Infrastructure Finance Limited, (in short, SREI). 16. From the abovementioned four resolution plans, as per the evolution matrix, SREI became the highest scorer. BPSL emerged as the second highest scorer. Against the scoring, there was a challenge raised by BPSL. BPSL challenged the eligibility of SREI in submitting the resolution plan under Sec.29 A of the IB Code. The objection raised by the BPSL as against SREI was found sustainable according to the CoC and CoC negotiated with BPSL and BPSL s plan became the highest scorer in the absence of SREI. SREI filed an application before the Adjudicating Authority, as CA (IB) No.377/KB/2018. The CoC was directed to consider the objections raised by the BPSL in regard to the disqualification raised by the BPSL and thereafter, the CoC found the objection raised by the BPSL as sustainable and accordingly decided to initiate negotiation with the BPSL as it became the highest scorer in the absence of the resolution plan of SREI. 17. Aggrieved by the decision of the CoC and the order of the AA, SREI preferred an appeal CA (AT) (Insolvency) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of production of resolution plan. 19. Pending CA No. 184/2018, the Hon ble Appellate Tribunal did not stay the process of selection of best plan by the CoC. Vide order dated 3/5/2018 in CA (AT) (Insolvency) No. 184/2018 the Hon ble Appellate Tribunal has held that if any decision is taken by the RP or CoC or the AA, the same shall be subject to the decision of this appeal. 20. The CoC being not prevented from taking decision to approve the resolution plan, which would meet the requirement of sub-section 2 of Sec.30 of the Code, the CoC approved the resolution plan of BPSL by 100% vote share and submitted to the AA in a sealed cover as per the order in IA No.705/2018 in Appeal No.184/2018. The resolution plan received by the AA was kept in the safe custody of the Registry and in the meanwhile, the final clarification order was passed by Hon ble Appellate Tribunal in CA No. 184/2018 and the CoC upon re-negotiation with all the resolution applicants, has re-approved the resolution plan of BPSL as it is the best plan amongst the four plans considered by the RP as well as CoC. 21. This is the plan under challenge by two of the financial creditors viz. IFCI and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Term Loan (Inclusive of all Interest) 1,447,700,033 1,447,700,033 4 Cash Credit (Inclusive of all Interest) 502,120,253 500,559,619 500,559,619 As per Annexure - 1 Annual Loan Processing fees for the financial year 2017-18 1,800,000 5 Reliance Commercial Finance Limited Cash Credit (Inclusive of all Interest) 334,924,527 334,924,527 334,924,527 334,924,527 As per Annexure - 1 Letter of Credit (Inclusive of all interest) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be made applicable at the stage of CIRP of the corporate debtor. He further states that voting on the methodology by the CoC so as to distribute the upfront payment amongst the financial creditors respective to the security interest they are holding, cannot be in estoppel against law and, therefore, he submits that the methodology of distribution of upfront payment in the resolution plan has to be changed, considering the proportionate share that the IFCI is entitled to, on the strength of its voting share and if it is modified to that extent, IFCI has no objection in approving the resolution plan. 23. Ld. Counsel appearing for the SREI also raised similar objection contending that similar financial creditors were discriminated considering the security interest which is contrary to the provision of the Code, Regulation and that of the judgment of the Hon ble Appellate Tribunal. To highlight the above said argument, Ld. Counsels appearing for the objectors refer to the judgment of the Hon ble Appellate Tribunal in Binani Industries vs. Bank of Baroda and another) and CA (AT) (Insolvency) No. 426/2018 (Central Bank of India v. Resolution Professional of Sirpur Paper Mills Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SI. No. Name of the Member of the CoC Voting Share (%) Agenda Item Number (see note below) 1 Allahabad Bank 14.24 For 2 ICIC1 Bank Limited 9.02 For 3 IFC1 Bank Limited 19.14 For 4 Punjab National Bank 6.62 Abstained 5 Reliance Commercial Finance Limited 4.40 For 6 Srei Infrastructure Finance Limited 3.67 Abstained 7 State Bank of India. 42.92 For Total Percentage Voting FOR the Resolution(s) 89.71 Total Percentage Voting AGAINST the Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... November 2018, the CoC was directed to reconsider all the resolution plans and CoC had reconsidered the plan on the basis of the very same methodology and the resolution applicant s restated plan was approved by the CoC and it was filed before the AA for final approval. The above said conduct of the IFCI and SREI no doubt attracts principle of estoppel or acquiescence. 30. At this juncture Ld. Counsel for the RP referring to Jai Narain Parasrampuria v. Pushpa Devi Saraf [2006] 7 SCC 756 All India Power Engineers Federation v. Sasan Power Ltd. [2017] 1 SCC 487, submits that the objection raised by both objectors is barred by the principle of estoppel, waiver and acquiescence. According to him, IFCI voted in favour of the distribution methodology and SREI having abstained from voting, both cannot be permitted to take a different stand other than the stand taken on 21st April, 2018. The proposition as laid down in paras 33 and 37 in Jai Narain Parasrampuria reads as follows:- Para 33 While applying the procedural law like the principle of estoppel or acquiescence, the court would be concerned with the conduct of a party for determination as to whether he can be permitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory right if waived in respect of a compromise, he cannot challenge it later. The distribution methodology in the case in hand has been at length discussed by the CoC. IFCI voted in favour of the methodology, while SREI abstained from voting. The proposition highlighted in the above said judgments indicate that a party who consciously consented to a methodology and voted for its approval cannot take an inconsistent stand later. Their objection is barred by principle of estoppel. Moreover, the methodology was put to vote and CoC passed it by a vote share of 89.71%. As per section 21(8) of I B Code, CoC is empowered to implement a decision of CoC, if it was passed by a vote of not less than fifty - one (51%) per cent of the voting share of the financial creditors. 32. The Ld. Sr. Counsel for the IFCI submits that principle of estoppel cannot be applicable in the case in hand because there is no estoppel against law. No provision of the Code was brought to my notice that the methodology approved by the CoC is illegal or as against any law. Even if it is contrary to any of the provisions of law, as the proposition held in All India Power Engineers Federation (supra) that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 14th November, 2018 and Sirpur Paper Mills Ltd. was disposed of on 19/09/2018. So they are aware that upon dissent, they would not lose their share prior to their date of voting against the Resolution Plan. They had enough time to challenge the methodology, decided on 21/04/2018. However, they have not opted to challenge the methodology in time. They have not opted to file the objection even at the time of filing application for approval of the first approved Plan. IFCI rushed to the AA after two days of filing the application for approval of the restated resolution plan. Upon the above said discussions, I am of the considered view that the objection of the objectors in that regard is found not at all sustainable and I can come to a conclusion that CA (IB) No. 1092/KB/2018 challenging the distribution methodology is not maintainable. This point is answered accordingly. 36. Point No (ii) 37. The moot question in the case in hand is whether creation of class amongst the financial creditors based on the nature of security interest is contrary to the I B, Code, Regulations or contrary to the judgments cited by the Ld. Sr. Counsel for IFCI and SREI? 38. Creation of class a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.83 21.12 Srei Infrastructure Finance Limited 27.73 3.67 8.14 8.14 Total 756.71 100.99 174.97 222.03 397.99 39. Referring to the above said distribution of upfront amount, what is highlighted on the side of the Ld. Senior Counsel on the side of the IFCI is that if the distribution is done in proportion to the vote share, the IFCI would have received ₹ 79.95 crores, on the other hand as per the distribution methodology, the IFCI would get ₹ 42.78 crores. According to him, the distribution of payment being not done as above, the distribution methodology is discriminatory. It is significant to note here that the total upfront payment to be distributed amongst seven financial creditors has been distributed by the successful resolution applicant on the strength of methodology adopted and approved by the CoC and, therefore, resolution applicant has nothing to do with the distribution and as such there is no challenge as against the resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and not balanced the stakeholders, such as Operational Creditors . Therefore, the Adjudicating Authority has rightly held the Resolution Plan submitted by Rajputana Properties Private Limited to be discriminatory. 42. Hon ble Appellate Tribunal has discussed at length about the discrimination amongst similarly situated creditors and not unequal creditors. What is held in the said judgment is that two same set of the creditors namely financial creditors who are similarly situated as guarantors cannot be discriminated . So, unsecured creditors who are financial creditors cannot be equated with financial creditors who had first charge by creating security interest and the creditors who had 2nd charge or 3rd charge etc. The challenge in the case in hand is not similar to the facts set out in the above said case. The Hon ble Appellate Tribunal upheld the AA s findings that the Resolution Plan of Rajputana Properties Private Ltd. is discriminatory for two reasons. Firstly, the Plan has not considered equally situated financial creditors and secondly the Plan has not balanced the stakeholders such as operational creditors. Here, in the instant case, no stakeholder other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to above, the liberty has been given to the Committee of Creditors to distribute amongst them (financial creditors) on the basis of their proportionate shares treating all equal. It appears to me that the Hon ble Appellate Tribunal has recognised the proportionate interest of the respective financial creditors and if the proportionate shares of the respective financial creditors is equal, they cannot be discriminated amongst them. Therefore, it appears to me that the above referred citation no way helpful to uphold the submissions of Ld. Counsel for SREI. Highlighting the order dated 12/09/2018 in the Sirpur Paper Mills Ltd. (supra) referred to above, the Ld. Sr. Counsel appearing for IFCI also has attempted to establish that among the financial creditors, there may not be any classification in proportionate with their security interest held by them. In the Sirpur Paper Mills Ltd. Ors., the Hon ble Appellate Tribunal has struck out Regulations 38(1)(b) and (c) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [In short, IBBI(IRPCP) Regulations, 2016] being inconsistent with the provisions of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security interest is a concept only to be applied in liquidation process. No express provision of Code, Regulations or any other Law was brought to my notice to uphold the above said submission of the Ld. Sr. Counsel for the IFCI. On the other hand, the said concept is known to resolution process and invariably applies in many number of cases. 47. Ld. Counsel for the RP at this juncture submits that the above said concept is applicable in many countries and referred to me a judgement of US Circuit Court of Appeals judgment dated March 29,1937 [89 F.2d 214 (1937) In re PALISADES-ON-THE-DESPLAINES. SEIDEL v. PALISADES-ON-THE-DESPLAINES et al]. He relied upon below mentioned para in the said judgment:- It is next urgea that the court erred in its classification of creditors claims, that is to say, that the court should have placed appellant in a separate class, apart from any class containing the holders of mortgages which were a first lien on other separate tracts of land owned by the debtor, but were not a lien upon the real estate which secured appellant s claim. In this respect, the statute provides that for the purposes of the plan and its acceptance, the judge s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be classified as one group of financial creditors is found devoid of any merit. 49. The Ld. Counsel for the RP also brought to my notice the objective behind the ranking of priority claims of creditors under insolvency law published by United Nations Commission On International Trade law (UNCITRAL) and Principles For Effective Insolvency And Creditor/Debtor Regimes, published by World bank. According to him, as per the Key Objectives and Policies for having an effective insolvency system, World Bank aims to provide for equitable treatment of similarly situated creditors, including similarly situated foreign and domestic creditors and recognise existing creditor rights and respect the priority of claims with predictable and established process and therefore, categorisation of creditors considering their security interest is known to law and it is not unreasonable or unethical, argued by the Ld. Sr. Counsel for the RP. I find some force in the argument advanced on the side of the RP. If I accept the distribution methodology introduced on the side of IFCI and SREI at the stage of finalisation of the approval of a resolution plan alleging discrimination among the similarly situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. The mandatory contents of the resolution plan as required to be meted out as per Regulation 38 of IBBI (IRP For Corporate Persons) Regulations, 2016 provides, inter alia, for: (a) Payment of insolvency resolution process cost in priority to the repayment of other debts of the Corporate Debtor. (b) Repayment/treatment of debts of Operational Creditors (not less than amount to be paid to operational creditors in the event of liquidation of Corporate Debtor as per provisions of IBC) (c) Management of affairs of the Corporate Debtor after approval of resolution plan. (d) Implementation and supervision of resolution plan. (e) Term of the Plan. (f) Adequate Means for its supervision, are also seen meted out as per the Plan. 53. The plan approved by the CoC is fair, equitable and does not discriminate against the objectors i.e. IFCI and SREI. Under these circumstances, I do not find any justifiable reason to disturb the distribution methodology, the very basis used by the resolution applicant for payment of upfront amount. 54. The extended period of CIRP expired on 18th May, 2018. There are intervening litigations between the RP and resolution applicants befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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